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Andreas Halvorsen's Firm Throws Chewy a Juicier Bone

Having exited a 1.5 million-share position in Chewy Inc. (NYSE:CHWY) in the third quarter, Andreas Halvorsen (Trades, Portfolio)'s Viking Global Investors disclosed on Thursday it established a new 6.8% stake.

A former student of Tiger Management's Julian Robertson (Trades, Portfolio), the guru's Connecticut-based firm picks stocks based on its understanding of the business' fundamentals and management team as well as cyclical and secular industry trends.

According to GuruFocus Real-Time Picks, a Premium feature, Halvorsen's firm invested in 3.6 million shares of the Dania Beach, Florida-based online pet retailer on Dec. 2, allocating 0.45% of the equity portfolio to the stake. The stock traded for an average price of $23.83 per share.

GuruFocus estimates the firm has gained 10.5% on the investment so far.


The company, which sells pet food and other pet-related products via its online platform, has an $11.69 billion market cap; its shares were trading around $29.39 on Friday with a price-sales ratio of 2.55.

Since its initial public offering in June, the stock has tumbled approximately 25%.


On Dec. 9, Chewy released its financial results for the third quarter. The company posted an earnings loss of 20 cents per share, falling 4 cents short of analysts' estimates. Revenue, however, grew 40% from the prior-year quarter to $1.23 billion, topping expectations of $1.2 billion. It also recorded a 32.8% increase in the number of active users, boosted net sales per active customer by 11.4% and its gross margin rose 410 basis points to 23.7% from 19.6% a year ago.

In a statement, CEO Sumit Singh said Chewy will continue to efficiently execute its "strategy of long-term, sustainable growth and margin expansion."

"We remain focused on delivering product innovation and technology that makes finding and buying the right product easy, convenient, and enjoyable," he said. "We believe we are transforming the industry with our truly unique and personalized, high-bar shopping experience that builds trust and brand loyalty by keeping the customer at the center of everything we do."

GuruFocus rated Chewy's financial strength 5.6 out out of 10, driven by a low cash-debt ratio of 0.67 and a Sloan ratio that suggests it has poor earnings quality. Despite this, the company also has a robust Altman Z-Score of 6.17, which indicates it is in good financial standing.

The company's profitability did not fare as well, scoring a 1 out of 10 rating on the back of negative margins and returns that underperform a majority of competitors.

Other gurus who currently see value in Chewy include Steve Mandel (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).

Portfolio composition

The firm's $19.2 billion equity portfolio, which is composed of 62 stocks as of the end of the third quarter, is largely invested in the health care sector, followed by smaller holdings in the consumer cyclical, technology and communication services spaces.


Other cyclical retailers Halvorsen's firm currently has positions in are Carvana Co. (NYSE:CVNA), Alibaba Group Holding Ltd. (NYSE:BABA), Lowe's Companies Inc. (NYSE:LOW), Amazon.com Inc. (NASDAQ:AMZN), MercadoLibre Inc. (NASDAQ:MELI) and JD.com Inc. (NASDAQ:JD).

Disclosure: No positions.

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This article first appeared on GuruFocus.